Members of Congress are back in legislative session this week after their lengthy summer recess. A plan to reinstate the estate tax has yet to take shape, but the upcoming work period will serve as a platform to begin debate over expiring tax provisions and broader tax reform, and the estate tax figures to be an integral component of that conversation. Here’s what we can expect to take place in the weeks ahead during the last period of legislative activity prior to the midterm elections in November.
Overview. The fall work period will be brief, lasting four weeks at most, and will provide lawmakers with an opportunity to address outstanding priorities – such as completion of H.R. 5297, a small business tax relief and lending measure; and passage of a continuing resolution to fund the government prior to the close of the fiscal year on Sep. 30. Congress also expects to begin debate over the expiration of 2001, 2003, and 2009 tax provisions. Senate Minority Leader McConnell (R-KY) and House Minority Leader Boehner (R-OH) have initiated this conversation by introducing legislation in their respective chambers that would prevent the expiration of these tax cuts. With this said, Congress is unlikely to complete consideration of a tax bill prior to their adjournment in early October, which would set the stage for consideration in a post-election ‘lame duck’ legislative session.
Estate Tax Dynamics. Positioning on the estate tax in both chambers has remained somewhat consistent. In the Senate, the struggle to obtain 60 votes for any proposal continues as Senators contemplate parameters for rate and exemption. Negotiations have hovered between a reinstatement of 2009 law ($3.5m exemption; 45% rate) and the more generous proposal advanced by Senators Lincoln (D-AR) and Kyl (R-AZ) (phased-in $5m exemption; phased in 35% rate). Finding a compromise has not been easy and appears unlikely in the September work period. Further, Senate Leadership has indicated a tax bill will not be sent through the Finance committee and that any base bill will likely include an estate tax with a $3.5 million exemption and 45% rate. The House, meanwhile, has not wavered in their support of a reinstatement and extension of 2009 law.
Legislative Vehicle. The previously discussed legislation to address expiring tax provisions is still the most logical vehicle for the estate tax. Leader McConnell’s recently introduced plan included an estate tax provision with a $5 million exemption, a 35% rate, with reunification, portability and indexing for inflation. Democratic leaders have not yet advanced a plan to address expiring tax cuts. Any proposal, as was touched on, is unlikely to make much progress with Senators, particularly because those in tight races are reluctant or unwilling to take a position on tax cuts considering the juxtaposition of the nation’s roughly $13 trillion debt and still recovering economy. The House has viewed this issue in a similar context, and it is unclear whether they will only proceed with tax legislation in the event that the Senate acts first.
